Euler Hermes Reinsurance AG Financial Condition Report Based on 31/12/2018 figures Financial Condition Report of Euler Hermes Re AG 2018 Contents Contents ........................................................................................................................... 1 Executive Summary .......................................................................................................... 1 Business activities (A) ............................................................................................................... 1 Company success (B) ................................................................................................................ 2 Governance and risk management (C) ...................................................................................... 2 Risk profile (D) ......................................................................................................................... 3 Valuation (E) ............................................................................................................................ 3 Capital management & Solvency requirements (F&G) ............................................................... 3 A. Business activities ...................................................................................................... 4 A.1. Business overview ......................................................................................................... 4 A.1.1. Business overview ........................................................................................................................ 4 A.1.2. Business outlook ........................................................................................................................... 4 A.2. Legal Entity & Group Structure and Related Party Transactions ...................................... 5 A.2.1. Legal Entity & Group structure ..................................................................................................... 5 A.2.2. Related Party Transactions ........................................................................................................... 6 A.3. External auditor ............................................................................................................ 6 A.4. Supervisory authority .................................................................................................... 7 A.5. Significant events in 2018 .............................................................................................. 7 B. Company success ....................................................................................................... 8 B.1. Underwriting performance ............................................................................................ 8 B.2. Financial performance ................................................................................................... 9 B.2.1. Analysis per nature of income and expenses ............................................................................... 9 B.2.2. Analysis per class of assets ........................................................................................................... 9 B.3. Performance of other activities ................................................................................... 10 C. Governance and risk management ........................................................................... 11 C.1. Governance framework ............................................................................................... 11 C.1.1. Overview .................................................................................................................................... 11 C.1.2. Board of Directors (BoD) ............................................................................................................ 11 C.1.3. Board of Management (BoM) .................................................................................................... 13 C.1.4. Key functions .............................................................................................................................. 13 C.1.5. Fit & Proper policy ...................................................................................................................... 16 C.2. Risk management system ............................................................................................ 18 C.2.1. Risk management framework .................................................................................................... 18 C.2.2. Risk strategy and risk appetite ................................................................................................... 21 C.3. Internal control system ............................................................................................... 21 C.3.1. Internal Control Framework principles ...................................................................................... 21 Financial Condition Report of Euler Hermes Re AG 2018 C.3.2. General elements of the internal control system framework .................................................... 22 C.3.3. Specific control areas ................................................................................................................. 23 D. Risk profile .............................................................................................................. 24 D.1. Risk profile overview ................................................................................................... 24 D.2. Current risk profile ...................................................................................................... 24 D.2.1. Top risks ...................................................................................................................................... 24 D.2.2. Target Capital ............................................................................................................................. 25 D.2.3. Stress tests.................................................................................................................................. 33 D.2.4. Liquidity ratios ............................................................................................................................ 33 D.2.5. Quantitative limits ...................................................................................................................... 35 D.2.6. Risk management policies, standards and guidelines ................................................................ 36 D.3. Other risk management processes ............................................................................... 37 D.3.1. Operational Risk ......................................................................................................................... 37 D.3.2. Reputational Risk and Issues management ................................................................................ 38 D.3.3. Concentration ............................................................................................................................. 39 D.4. Future risk profile ........................................................................................................ 40 D.4.1. General description .................................................................................................................... 40 D.4.2. Impact of the sale of EH Ré SA ................................................................................................... 40 E. Valuation ................................................................................................................ 42 E.1. Assets ......................................................................................................................... 42 E.1.1. Real estate .................................................................................................................................. 42 E.1.2. Shareholdings ............................................................................................................................. 42 E.1.3. Fixed-income securities .............................................................................................................. 43 E.1.4. Loans .......................................................................................................................................... 43 E.1.5. Equities ....................................................................................................................................... 43 E.1.6. Collective investment schemes & other investments ................................................................ 43 E.1.7. Cash and cash equivalents.......................................................................................................... 43 E.1.8. Receivables from insurance business ......................................................................................... 44 E.1.9. Other Receivables ....................................................................................................................... 44 E.2. Liabilities .................................................................................................................... 44 E.2.1. Best estimate of provisions for insurance liabilities & Ceding of provisions .............................. 44 E.2.2. Non-technical provisions ............................................................................................................ 45 E.2.3. Liabilities from insurance business ............................................................................................